Income Tax Appellate Tribunal - Ahmedabad
Rohit Nandlal Trust, Ahmedabad vs Assessee on 11 March, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH - AHMEDABAD
(BEFORE SHRI A. MOHAN ALANKAMONY, AM AND SHRI
KULBHARAT, JM)
ITA No.3286/Ahd/2010
A. Y.: 2007-08
Rohit Nandlal Trust, Prop. Vs The Deputy
nd
Modern Tubes,12, 2 Floor, Commissioner Income
Shanti Sadan Estate, Tax, Circle 3, 5th Floor,
Mirzapur, Ahmedabad-380001 Insurance Building,
P. A. No. AABTR 12227R Ashram Road,
Ahmedabad.
(Appellant) (Respondent)
Appellant by Ms. Urvashi Shodhan, AR
Respondent by Shri Y.P. Verma, SR. DR
Date of hearing: 11-03-2013
Date of pronouncement: 17-05-2013
ORDER
PER A. MOHAN ALANKAMONY: This appeal is preferred by the assessee aggrieved by the order of the learned CIT(A) in appeal no.CIT(A)-XVI/DCIT, Cir.-3/343/09-10, Ahmedabad dated 8.11.2010 passed u/s 250 read with section 143(3) of the IT Act, for the assessment year 2007-08.
ITA No.3286/Ahd/2010 (AY 2007-08) 2Rohit Nandlal Trust Vs DCIT, Cir-3, Ahmedabad
2. The assessee has raised five grounds in its appeal wherein ground no.1 and 5 are general in nature and do not survive for adjudication. Now ground no.4 with respect to initiation of penalty u/s 271(I)(c) of the Act, is premature and therefore dismissed as such. The remaining two grounds are reproduced herein-below for our consideration:-
Ground No.2 "The learned CIT(A) XVI, Ahmedabad has erred in confirming the disallowance of interest of Rs.11,03,207/- u/s 40A(2)(b) of the I.T. Act.
Ground No.3 The learned CIT(A) XVI, Ahmedabad has erred in confirming the disallowance of Commission of Rs.6,00,000/- u/s. 40A(2)(b) of the I.T. Act."
3. Brief facts:-
The assessee is a firm/trust engaged in the business of trading in steel, tubes and pipe fittings filed its return of income for the assessment year 2007-08 on 29.10.2007 declaring total income at Rs.13,62,452/- and the same was processed u/s 143(1) of the Act. Subsequently, the case was taken up for scrutiny and order under section 143(3) of the Act was passed on 29.12.2009 wherein the ld. A.O. disallowed interest expense of Rs.11,03,2017/- and sales ITA No.3286/Ahd/2010 (AY 2007-08) 3 Rohit Nandlal Trust Vs DCIT, Cir-3, Ahmedabad commission of Rs.6,00,000/- both paid to related parties invoking section 40A(2)(b) of the Act. On appeal before the ld. CIT(A), the ld. CIT(A) confirmed the order of the A.O. accepting the view of the ld. A.O. that the market rate of interest is 12% per annum and any amount paid beyond this rate is excessive and therefore disallowable under section 40(2)(b) of the Act. Similarly, the ld. CIT(A) confirmed the order of ld. A.O. for the sales commission paid to Shri Vimal Vora Rs.3.75 lacs, Chetan Vora 1.25 lacs and H.T. Vora Rs.1 lac aggregate into Rs.6 lacs u/s 40(2)(b) of the Act, since, the appellant had failed to give any evidence for service rendered.
4. At the beginning of the hearing, ld. A.R. pointed out that for the identical issue and identical facts with respect to payment of sales commission, the Tribunal has held the matter in favour of the assessee for the assessment year 2008-09 vide order dated 19.10.2012. The ld. A.R. referred to page no.38 to 40 of the paper book filed by the assessee, being the copy of the order dated 19.10.2012 cited (supra). Ld. A.R. further argued that since the issue and facts are identical for the relevant previous year, the order of the Tribunal for the assessment year 2008-09 would prevailed and the therefore the same may be followed. The ld. D.R. could not controvert to the submission of ld. A.R. however relied upon the order of the revenue and argued in support of the same.
5. After hearing both sides and perusing the paper book and other materials produced before us and further scrutinizing the order of the Tribunal dated 19.10.2012 for the assessment year 2008-09 in ITA ITA No.3286/Ahd/2010 (AY 2007-08) 4 Rohit Nandlal Trust Vs DCIT, Cir-3, Ahmedabad No.1108/Ahd/2012, we find that the issue with respect to payment of sales commission to related parties for the relevant assessment year 2007-08 is covered by the aforesaid decision. The extract of the relevant portion of the order is reproduced herein-below for the sake of convenience:-
" We have heard both the sides. The name, address, PAN and the details of the commission paid along with the TDS detail in respect of all the three parties have been placed on record. The commission was paid @ 1% of the amount of sales. The copies of return of income filed by those parties have also been placed in the compilation. Before us, it was also contested that in A.Y. 2006-07 the assessment was made u/s.143(3) vide an order dated 19.3.2008, wherein he profit as disclosed by assessee was not disturbed on th point of payment of commission and the facts of that year were identical with the facts under consideration. Ld. AR has therefore pleaded that a consistent view on identical fats should have been taken by the Revenu Department. The assessee has furnished the details of the brokerage paid along with the party-wise bills raised. The explanation of the assessee was that the competition in Maharashtra was increasing day-by-day, hence adversely affecting the business; therefore the said three parties were engaged to promote the sales. It was their duty to collect the order as also to follow up the transaction. The assessee has paid the said amount only to increase the sales and to ensure ITA No.3286/Ahd/2010 (AY 2007-08) 5 Rohit Nandlal Trust Vs DCIT, Cir-3, Ahmedabad the recovery the payment. Since, the expenditure was wholly and exclusively for the purpose of the business, therefore it was argued that the disallowance was not in accordance with law. Case laws relied upon were; in the case of CIT vs. Shree Sajjan Mills Ltd. 112 ITD 135 (ITAT Indore), in the case of Aluminium Corporation of India Ltd. Vs. CIT 86 ITR 11(SC) and in the case of CIT vs. Indo Saudi Services (Travels) (P) Ltd. 310 ITR 306 (Bom.) Respectfully relying upon these decisions and considering the totality of the facts and circumstances of the case, we hereby hold that the Trust has availed the services of these persons; therefore the commission was legitimately paid on the business brought by them. Resultantly ground raised by the assessee is allowed."
Following the decision of the Tribunal cited supra, we hold the issue with respect to disallowance of Rs. 6 lacs being sales commission paid to related parties u/s 40A(2)(b) of the Act in favour of the assessee and accordingly directed the ld. A.O. to delete the addition.
6. With respect to ground no.2 regarding excess interest payment, ld. A.R. argued that the interest paid @ 15.5% is quite reasonable for private finance and it cannot be compared with the rate of interest of 12% charged by banks and private financial institutions. Ld. A.R. submitted that the banks and private financial institutions lays down various stringent procedures in order to advance loan and therefore the rate of interest of 12% charged by them cannot be considered as the market rate when compared with other private finance. It was ITA No.3286/Ahd/2010 (AY 2007-08) 6 Rohit Nandlal Trust Vs DCIT, Cir-3, Ahmedabad further submitted by the ld. A.R. that in private finance the rate of interest varies from 16 to 18 per cent and therefore the rate of 15.5 per cent paid to the related parties by the Assessee is quite nominal and reasonable. With this submission ld. AR pleaded that the addition made for Rs.11,03,207/- by the AO for excess payment of interest of 3.5 per cent which was further confirmed by the learned CIT(A) may be deleted. Ld. D.R. supported the order of the revenue and prayed that the same may be confirmed.
7. After hearing both sides considering the facts and circumstances of the case before us, we are of the view that the interest paid by the assessee at rate of 15.5 per cent to the related parties is quite reasonable. As argued by the learned A.R., the interest charged by banks and financial institutions cannot be considered as a market rate and compared with rate of interest charged by private financiers. Private financiers unlike the bank and private financial institutions generally do not lay down stringent conditions for advancing loans. Further the processing of the loan and advanced by private financier's are less cumbersome and less time consuming. As a result the risks suffered by the private financier's are multifold. Therefore, the rates of interests charged by the private financier's are higher compared to banks and financial institutions. Considering these facts, we are of the view that the interest rate of 15.5 per cent paid by the assess to its related parties is quite reasonable and therefore we hereby direct the ld. A.O. to delete the addition of Rs.11,03,207/- made on account of excess ITA No.3286/Ahd/2010 (AY 2007-08) 7 Rohit Nandlal Trust Vs DCIT, Cir-3, Ahmedabad payment of interest u/s 40A(2)(b) of the Act. Thus, this ground is also decided in favour of the assessee.
8. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 17-05-2013 Sd/- Sd/-
(KUL BHARAT) (A. MOHAN ALANKAMONY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
PRABHAT
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Asst. Registrar, ITAT, Ahmedabad
1. Date of dictation: direct on computer - 13/05/13
2. Date on which the typed draft is placed before the Dictating Member: 13/05/13 other Member:
3. Date on which approved draft comes to the Sr. P. S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement: N.A.
5.Date on which the fair order comes back to the Sr. P.S./P.S.:10/05
6. Date on which the file goes to the Bench Clerk:
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order: